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Medifast: Perfect For Dividend-Growth Investors

Oct. 04, 2021 11:17 PM ETMedifast, Inc. (MED)35 Comments
EE Investing profile picture
EE Investing


  • Medifast has great financials and a deep moat around its business.
  • The company grew its quarterly dividend by almost 500% since 2016 and currently has a dividend yield of 3%.
  • Due to a relatively low payout ratio and many growth opportunities, the dividend is expected to increase even further in the future.
  • A conservative relative valuation of the stock reveals an upside of at least 50%.
Satz von nehmen Sie auswärts essen Boxen auf weißem Hintergrund

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After a 40% price drop since May of this year, I believe Medifast (NYSE:MED) is currently undervalued and has an upside of at least 50%. Below I will analyze the company’s deep economic moat and its many growth opportunities. Also by

This article was written by

EE Investing profile picture
My Background: Grew up in Germany, working and living in China. MSc in Finance. Years of experience in strategy consulting and finance.Stocks that I cover usually have market caps between $10M and $25B and fall into one of the two categories below:Category A - Asian stocks: I work and live in China, am able to speak Mandarin, and therefore can provide readers with unique insights. I believe especially Chinese stocks are extremely mispriced. Some companies are obvious scams and/or trade for far too high valuations, and some stocks are growing rapidly have P/E ratios of below 3 and are debt-free. Most of my profits I earn in this category. (recent examples are FINV, YRD, VIPS or HUYA)Category B - Growth at a reasonable price: As I do not want my whole portfolio to be exposed to Asia, I also analyze a lot of US stocks. My focus is on, often undercovered, growth companies that are in the best case already profitable and available for a reasonable price. (recent examples are PUBM, GPRO or MED)(Important Note: My articles and comments are not intended to be investment advice. Please do your own due diligence before making investments in any security.)

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (35)

Guyelm profile picture
If Herbalife's sellers will check from time to time how their customers doing and motivated them, they will be the same as OPTAVIA's coaches.
Herbalife brand is much bigger than OPTAVIA.

So.. why MED?
EE Investing profile picture
@Guyelm Both seem cheaply valued, but MED is growing faster. Every company has competitors, but that doesn't mean we shouldn't invest in them. Especially in this case, we saw over the last years that both companies are able to be profitable at the same time without hurting each other's business.
Guyelm profile picture
@EE Investing so there is no big moat here, there is a market that's need to be filled.
Let put the valuation aside, how the business named Medifast better than Herbalife? Can't find a pure competitive advantage here.
dc_dwd profile picture
@Guyelm their moat is their network of ~55,000 coaches, and growing every year. Business is growing organically, and they haven't penetrated a couple of the largest markets in the world like China and Latin America. You won't see this stock rip during this inflation environment because of the margin pressures, and investors are more interested in the reopening play. So, definitely a good time to buy if you're a long-term investor at his discount.
Thanks for the nice write-up and great idea.

I would add that the tight share structure (low sharecount and virtually no dilution) make for an explosive upside once the market catches back up on the name. However I think this is true as well on the downside if the company underperformed.
craftbrewinfo profile picture
Saw the chuck carnevale video today, doing my own due dilligence and I really like what I see here !
Gr1iev3r profile picture
i went all-in here. it is the best stock, with the most favorable metrics i could found this year.

sold all my other positions. i will take a pill, going sleep, and when i wake up i will be happy :D
Really strange stock. This is now the same price as it was on or about 8/1/18. Yet in 2021, the EPS will be triple what it was in 2018, and will grow further next year and beyond. Very rare and very strange. Not to mention you get a debt free company and a 3% yield.
craftbrewinfo profile picture
@mb1099 That's Mr. Market's irrationability at work
B_Banzai profile picture
My wife is a satisfied customer. The food is "so so", but when she stays on plan she does well. She lost 20 lb last year. Then the holidays came and she struggled to get back on track but finally is seeing her weight fall again. I imagine this is typically how things go. The products are not cheap, but they do work if you maintain discipline. I decide to get back into the stock.
craftbrewinfo profile picture
@B_Banzai so did my wife! those snack bars have been in the past to now, the only thing that ever knocked out her cravings to eat... she lost 25lbs in a little over 2 months.. it works.. Different from Weight watchers- they are just coaching, different from Nutrisystem, which is just food.. here you have the food and coaching
A couple missing points in a great article and commentary board:

Management stated in the last earnings call that they are gearing up (via improved supply chains, logistics, and manufacturing capability) for a $2B run rate in sales sooner rather than later (my guess is '23). This is a pretty bold and specific statement, that certainly speaks to the company's optimism about Optavia and its continued growth trajectory. At that level of sales, we will see $20/share in EPS (at a minimum), which really makes this a screaming buy at a PE of under 10. So by simply ignoring the noise regarding inflationary impact on margins in the short term, we are bound to go much higher just based on meeting this target of $2B/yr in sales.

Let's not also forget that going on youtube or other social media and seeking out weight loss coaches or advocates is far easier said than done. An MED trained and incentivized coach that routinely checks in on and motivates the customer via tech driven applications specifically developed and refined by MED for that purpose is in fact a pretty decent moat. Granted anyone can be a 'health coach' but the Optavia business model in its totality works for the customer, the coaches, and the company. As long as the company keeps on chugging along this ridiculous share price will seem like a huge bargain.
Down 42% since 6/1,continuing lower highs & lows.Looks like the share price is the only thing on a diet!!
HardytheTrader profile picture
$MED was trading at much higher fwd PE multiples when there were more question marks about the business model (mid 2018). I think the recent crash is an excellent buying opportunity. There is risk involved due to the lack of a moat, but the potential return of an investment is insane so its a speculative strong buy for me

Long MED
EE Investing profile picture
@HardytheTrader Yeah, totally agree. I don't think it can stay at such low levels for long.
I am invested and like the dividend yield. However I really doubt they have a moat :)
1) people live healthier
2) if they are real good coaches, clients will have reached their goal after some time and quit because they had success and have learnt how to eat and live in a healthy way
3) more and more coaches are providing their knowledge much cheaper. social media is also a direct easy source in order to find reliable and suitable coaches.

I hope that MED performance well over the years, but at the moment I doubt it.
EE Investing profile picture
@Senopta Thanks for your comment!
These points don't address the moat that I explained in the article, but I think anyways you might be a bit too pessimistic here.

1) People wanting to live healthier, is great for the company
2) That is one possible scenario. It could also be that they get used to the food and will continue buying it or they see it as the reason for their diet's success and will keep buying it. Or they might become coaches themselves. It is difficult to estimate how many customers will stop being customers after a successful diet, but certainly, the number of people who stopped buying the products was much smaller than the number of people who started buying the products in the recent three years.
3) For sure, free consulting via youtube etc. is competition, but that is not a new thing. Those influencers have been there for a long time and it didn't stop the growth.

That being said, good luck with your investment!
Sensible Investing profile picture
@Senopta The MLM is the moat; I'd encourage you do some research as to what % of people who lose weight actually keep it off, despite how good the coach is - ever wonder why movie stars get fat afer the movie? Surely they can afford the best coaches??
@Sensible Investing then they have learnt nothing or still have no discipline without a coach. It is simple physics.
dc_dwd profile picture
Margins under pressure due to inflation in short term as stated in the previous conference call is really my only concern. Looks like the sell off is happening throughout the industry and the chart looks.. well, ugly. Cyclicals is the play right now, so there is probably some rotation out of MED. I opened a position today because the fundamentals are too ridiculous to ignore and I like their business model.

Thanks for the analysis. It was a good read, and glad to that others think the same about MED.
EE Investing profile picture
@Daniel Casso Thanks for your comment!You are absolutely right, inflation will put pressure on the margins, but this will be just in the short term. Latest in twelve months from now, sales prices have been adjusted accordingly and margins will be back to normal.
P373R profile picture
Very nice write up.
My 2021/22 blended P/E (21 eps=13.9, 22 eps=16.9, P/E=18) fair value is $291 right now, not too far off from yours :)
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